Two years to mend finances

The European Union’s Economy and Finance Ministers’ Council (Ecofin) yesterday endorsed the Commission’s recommendation for placing Greece under the excessive deficit procedure of Article 104, Paragraph 9 of the Maastricht Treaty. The decision means that Greece will now have the progress of rehabilitating its public finances closely monitored by the Commission, with obligations to submit a detailed report on the execution of its budget every six months and to adopt measures of «a permanent and viable» nature toward restoring fiscal propriety. Athens is given two years to achieve economic propriety, defined as a budget deficit below 3 percent of gross domestic product (GDP). This year, it will have to cut it by at least 2 percentage points from last year’s level, variously estimated between 5.5 percent and 6.5 percent. Economy and Finance Minister Giorgos Alogoskoufis expressed satisfaction with the decision. «It fully adopts the Greek government’s priorities for fiscal transparency and balance,» he said, adding that that the two-year period given is sufficient to bring the deficit down to the required level without the government abandoning its declared policy of mild adjustment, as provided for in the 2005 budget. The decision adopted by Ecofin calls for «a strict implementation of the 2005 budget, as approved by the Greek Parliament.» The budget does provide for a drastic reduction in the deficit, down to 2.8 percent, but this is widely regarded as unrealistic. In any case, the return to below 3 percent will have to be achieved in the 2006 budget. The government has fully accepted the Commission’s clear mandate that reducing the deficit will be exclusively based on permanent and viable measures of a structural nature, rather than with one-off tax measures. Athens will have to submit a detailed strategy early next month, and six-monthly progress reports thereafter, starting in October. The impact of two particular parameters in the issue are still unknown, the exact deficit of 2004 and the growth rate of 2005. As regards the 2004 deficit, the exact figure will be known next month, and Brussels is taking it for granted that it will be higher than 5.5 percent. The Commission also fears the 2005 growth rate will be lower than 3.3 percent, which will hamper the entire endeavor. Alogoskoufis said yesterday there is no indication supporting the Commission’s pessimism. He also said that eventually eliminating the deficit is a prerequisite for maximizing growth and social cohesion but not a sufficient one. «For real growth, we must also free the economy’s potential, there must be investment and an outward-looking attitude, EU investment subsidies must be fully utilized and, of course, the private sector has to respond accordingly,» he said. Former PASOK Foreign Minister Theodoros Pangalos, who was in Brussels yesterday, accused the government of «myth-making for political reasons, which has reduced the country’s credibility,» referring to its revision of public finances, which produced the unacceptable deficit figure.

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